There are echoes of the 2015 bubble in the soaring prices of Chinese stocks. What’s the difference?

BEIJING — Analysts said the surge in Chinese stocks so far looks different from the 2015 market bubble.

Mainland China’s main stock index rose more than 8% on Monday on expectations for stimulus, extending its winning streak. According to Wind Information, the trading volume on the Shanghai and Shenzhen stock exchanges reached 2.59 trillion yuan ($368.78 billion), exceeding the peak of 2.37 trillion yuan recorded on May 28, 2015. Ta.

Aaron Costello, head of Asia at Cambridge Associates, said on Monday that China’s stock market doubled in value in six months from 2014 to 2015, and leverage rose.

This time, the market is not as high and leverage is lower, he said. “We are not in the danger zone yet.”

According to Wind Information, the percentage and amount of stock market leverage in 2015 was much higher than Monday’s data showed.

In June 2015, the Shanghai Composite Stock Price Index soared to more than 5,100 points, a level it has never recovered from since the market plunged late that summer. That same year, MSCI postponed the addition of mainland Chinese stocks to its globally-linked emerging market index. Sentiment was also hit by Beijing’s back-and-forth over a crackdown on borrowed-finance trading and a surprise currency devaluation. Chinese yuan against the US dollar.

This year, while the yuan has strengthened against the dollar, foreign institutional investors’ allocations to Chinese stocks have fallen to multi-year lows.

The Shanghai Composite stock price closed at 3,336.5 on Monday, before mainland exchanges closed for a week-long holiday commemorating the 75th anniversary of the founding of the People’s Republic of China. Trading is scheduled to resume on October 8th.

In the run-up to the 2015 market rally, Chinese state media encouraged investment in the stock market, while lax rules allowed people to buy stocks with borrowed money. The Chinese government has long sought to build a domestic stock market, but its establishment is about 30 years old, much younger than the United States.

The market’s recent rally follows economic support and programs announced last week to encourage financial institutions to put money into stocks. Stocks have largely recovered from this year’s lowest levels on the news. The CSI 300 rose nearly 16% in its best week since 2008.

Chinese President Xi Jinping led a high-level meeting on Thursday, calling for halting the decline in the real estate market and strengthening fiscal and monetary policies. The People’s Bank of China last week also lowered interest rates and the amount existing mortgage holders have to pay.

“This policy is stronger; [more] Still, the economy faces greater headwinds[s] “Compared to then, things are different now,” said Ning Zhu, author of “China’s Guaranteed Bubble.”

Just because stocks have risen significantly over the past week doesn’t mean the economy is headed for a similar recovery.

The CSI 300 index remains more than 30% below its February 2021 high, which was also above the index’s 2015 high.

“Japan’s experience provides important perspective, as the Nikkei 225 Index rebounded an average of 34% four times before dropping a cumulative 66% from December 1989 to September 1998,” said Dr. said researcher Stephen Roach. The school’s Paul Tsai China Center made the point Tuesday in a blog post that was also published in the Financial Times’ Opinion section.

Economic indicators over the past few months have pointed to slowing growth in retail sales and manufacturing. This raised concerns that China’s gross domestic product (GDP) would fall short of its full-year target of around 5% without additional stimulus.

“What’s missing is that the key to a lot of this, and it’s really a confidence-building measure, is how to fix local government finances. I think so,” Costello once said, referring to local funding. Income for public services depended on land sales.

Chinese authorities have lowered interest rates and eased some restrictions on home purchases, but the Ministry of Finance has yet to announce additional bond issuance to support growth.

Peter Alexander, founder and managing director of Z-Ben Advisors, expects the level of fiscal stimulus, likely to be announced in late October, to be lower than the market is expecting. .

“Investors may be a little reluctant, as people often say,” he said on CNBC’s “Street Signs Asia” on Monday.

In a written response, he added that based on his experience in 2007 and 2015, the rally in Chinese stocks could continue for another three to six months or end abruptly.

“This is pure animal instinct and the Chinese are holding back in anticipation of a rising stock market,” Alexander said. He added that there was market risk due to how unprepared the stock trading system was for the surge in buying.

Data on the number of new retail investors in China this year has not been made public. Securities firms are overwhelmed with new requests, the report said, mirroring the wave of individuals entering the stock market about a decade ago. The Shanghai Stock Exchange said on Friday that it had been unusually slow in confirming trades for the market opening.

“China was cheap, but it lacked a catalyst. … There was a catalyst to unlock value,” Costello said.

“Basically, what is needed is for corporate profits to increase,” he said. “If it doesn’t go up, this is all just a short-term pop.”

The Chinese government’s efforts earlier this year to stem the market collapse included replacing the head of its securities regulator. Stock prices rose, but the bull market ended in May.

James Wang, head of China strategy at UBS Investment Bank Research, said in a note on Monday that the factors that could push stock prices above May levels are that earnings per share estimates have stabilized compared with the downgrade earlier this year. He said that it is necessary to be present.

He said lower U.S. interest rates, a stronger Chinese yuan, increased stock buybacks and a more coordinated response from policymakers were also supporting the rally. Wang’s latest price target of $70 for the MSCI China index is now just a few cents above Monday’s closing price.

—CNBC’s Hui Jie Lim contributed to this report.